The most familiar form of secured loan is your mortgage. On the other end of the spectrum is the pawnshop. In both cases the money is lent against the value of a property, be it a home or a table saw.
A secured loan may be your only course if your credit history is not as strong as you might wish. Questionable payment history can preclude you from obtaining an unsecured personal loan.
A secured loan can also offer the advantage of a more extended repayment, as well as the ability to borrow more substantial sums than you can with an unsecured loan.
Along with these benefits, the obvious pitfall is that if you are unable to pay, the lender can take possession of the collateral, your property. In that event, you most likely will have no recourse.
For that reason, it is crucial to evaluate your financial needs and abilities straightforwardly and critically. Make sure that you are borrowing the proper amount for an appropriate purpose.
It makes no sense to put your home on the line to take a Mediterranean holiday. Remember, you are pledging your possession against your promise to pay.
This possession can be anything from your home, car, financial assets, jewelry, or any other tangible item of value the lender will accept. You will also lose access to that equity while the loan is in effect.
Just as the lender does, you must evaluate your own exposure to risk and weigh the consequences against your assumed value in taking out the loan.
The lender may qualify you for more money than you are asking, it is unwise to borrow more than you need. A larger loan means a higher payment and a more considerable amount of interest. Not to mention, you are increasing your risk.
Several things can influence your interest rate; the amount of the loan, your credit score, the length of repayment, and the allowed value of your collateral will all impact the rate decision.
In the UK, the application process for a secure loan takes approximately 14 to 21 days. After that, UK law requires an eight-day cooling-off period to give you, the borrower, time to change your mind.
After your application is approved and the cooling-off period is satisfied, you will receive the final paperwork for your signature. Your funds should be available shortly after that.
There are many reasons people require a secure loan. Because of the risk to you, this loan should ideally leverage your financial situation, be used to purchase or improve an existing property or some other asset.
Remember, while a secure loan provides many advantages, it is also a serious commitment of your assets. You must be careful in your consideration of this.
If you are borrowing because your credit standing prohibits your qualifying for an unsecured loan, you should be particularly attentive to these risks. If repayment has been a problem in the past, be careful not to place yourself in a difficult or undesirable situation.